Wednesday, February 27, 2013

What the sequester means for housing in your state

by Blake Warenik, National Housing Conference and Center for Housing Policy

We at NHC have been raising the hue and cry on the impending sequester for quite a while now. As recently as October, the Office of Management and Budget told federal agencies to operate normally, as if a deal was expected (though Ethan Handelman said even then that this development may have been more hope than expectation). And still the cuts loom; if a decision is not reached Friday, the cuts begin automatically.

Though we can't know all of the consequences of the sequester, the folks over at the Center for Budget and Policy Priorities (CBPP) have released data on how much housing programs in each state stand to lose without a deal by Friday. It's helpfully broken down into two tables showing how much each state will lose right now; one table shows cuts to housing (including HOME and Native American housing grants) and Community Development Block Grants, and the other shows cuts to rental assistance.

It's an interesting and frightening read. While the sequestration cuts to my home territory of the District of Columbia appear as just a blip—primarily due to its small population—there is one statistic that really drives the message home for me. CBPP estimates that 541 D.C. families will lose their Housing Choice Vouchers if Congress does not reach an agreement to avoid the sequester by Friday. In an environment where more than three-quarters of families who qualify for assistance actually receive it (see page 16 of this CHP report), we should be expanding assistance to more families in need, not cutting it.

Improving housing affordability for low-income families isn't even a very controversial issue. This week's report from the Bipartisan Policy Center's Housing Commission demonstrates rare agreement from both parties that housing resources should be targeted to those at 30 percent of area median income and below. It seems a shame to squander such important room for discussion simply because inaction is easier.

So now, when lawmakers aren't even having the most basic discussions about how to avoid the across-the-board cuts laid as a boobytrap to ensure meaningful deficit reduction measures as part of the 2011 debt ceiling fight, it feels especially frustrating to know that we are rushing headlong into the designated, long-anticipated, worst-case scenario of $86 billion in mandatory, brute-force cuts. Even more frustrating is that the sequester is merely the latest manufactured crisis to come out of Washington and threaten both vital programs and a fragile economic recovery.

When we talk about the effects of the sequester on families, rather than dollars, the foolishness of this crisis becomes clear. How many families in your state will lose access to housing affordability as a result? Read on—if you can stomach it.

Monday, February 25, 2013

NHC welcomes Bipartisan Policy Center’s Report on Housing

by Chris Estes, National Housing Conference

Today’s release by the Bipartisan Policy Center’s Housing Commission demonstrates how housing cuts across partisan divisions.  NHC welcomes the Commission’s focus on identifying the critical housing challenges we face and proposing policy solutions to address them head-on.  Housing is too critical to the safety and health of our families and children, the stability of our neighborhoods, and promise of our nation’s economic future to let politics get in the way of necessary action.

The 136-page report recommends change in many areas: rental housing, homeownership, the housing and medical needs of an aging population, rural housing and mortgage finance.  It contains a wealth of information to inform discussion throughout the year and beyond, and NHC urges our members and all who care about housing policy to read it, discuss it and, by doing so, help to advance housing policy.  Notable recommendations in the report include:

  • Reforming mortgage finance to put more private capital bearing risk ahead of government and limiting the government role to a limited, paid-for means of assuring stability, liquidity and wider access to affordable mortgage credit.
  • Expanding rental housing assistance, through production of new rental homes, preservation of existing public and private affordable rental housing and direct rental assistance to the most vulnerable.
  • Strengthening rural housing assistance, by expanding the resources committed and the capacities of organizations delivering assistance.
  • Helping older Americans age in place comfortably, by supporting retrofits for energy efficiency and accessibility and making federal assistance more compatible with solutions that deliver medical services in-home and locally in communities.

Let us follow the BPC Housing Commission’s example and work together toward safe, decent and affordable housing for all in America.  We can and should discuss the details vigorously, but then unite to support positive change in housing policy, for we are stronger together.

Friday, February 22, 2013

Moving Forward: Long-Term Viability and Affordability of Multifamily Rental Housing

by Jeffrey Lubell, Center for Housing Policy

At the Center for Housing Policy, we have long been interested in whether “long-term affordability” could be used as a strategy for getting more “bang for the buck” and increasing the number of families that can be served with fixed levels of affordable housing funding. For the most part, our examination has focused on affordable homeownership programs, where our analysis suggests that, over a 30-year period, shared equity approaches (such as community land trusts or long-term resale restrictions) can provide affordable ownership opportunities to two to three times as many homebuyers as an equivalently funded grant program.

But I’ve written about shared equity homeownership before. Today, I want to consider long-term affordability in the context of affordable rental housing.

Can long-term affordability likewise be used as a strategy for serving more families at current funding levels if applied to affordable multifamily rental housing? On the face of it, it seems logical to think that it might. After all, if you can get 50 years of affordability, rather than 15 or 30 years, from the same initial investment, doesn’t that improve efficiency and decrease the costs of each year of affordability?

When I’ve discussed this issue with practitioners, they have raised a number of practical obstacles – mostly notably, the fact that affordable rental properties are typically financed in a way that ensures they remain financially viable for only 15 to 20 years, at which point they need a new injection of capital. Typically, this is accomplished with low-income housing tax credits (often the less-costly 4 percent credits) which extend both the financial viability of the property and the duration of its affordability covenant.

These recapitalizations can be expensive, both because of the new allocation of tax credits and because of the soft costs (lawyers, accountants, etc.) associated with getting the transaction completed. Wouldn’t it be less expensive overall if affordable rental properties could be financed initially so as to remain financially viable over their full lifecycle (say, 50 years), thus avoiding the need for these expensive recapitalization events?

A new suite of materials about “lifecycle underwriting” provide the tools for examining this and other related questions, and I invite you all to take a look at the materials and help us consider their import for policy and practice.

Lifecycle underwriting is the name we’ve given to a new approach to underwriting, developed by our research partner, the Compass Group, that considers the viability of a multifamily affordable rental property over the course of its full lifecycle. We’ve chosen to look at a 50-year lifecycle, but you can choose to look at lifecycles of a different length. The basic idea is to project the capital needs of a property over its full lifecycle and consider whether the property has sufficient funds available to meet those needs. If not, we calculate the amount of additional funds that would need to be deposited into the initial replacement reserve to ensure the property can meet those projected needs over its full lifecycle.

We applied this methodology to a convenience sample of more than 250 multifamily affordable properties and came to some interesting conclusions.

As you might expect, most properties were not likely to be viable beyond 15 years without accessing their cash flow or the proceeds of a refinancing. If given access to cash flow and refinancing proceeds, however, about half of the properties would be viable over a 50-year period. This underscores the importance of considering cash flow and refinancing as strategies for ensuring long-term viability.

We next looked at how much more it would have cost at the time of project development to make the remaining properties viable over a full 50-year lifecycle – again, assuming access to cash flow and refinancing proceeds as needed during the lifecycle. The answer, for these particular properties, was about $6,558 per unit (in 2009 dollars). This represents a 4.3% increase in initial project cost for about half of the properties in our sample (or roughly a 2% increase in initial costs if amortized over the full sample of properties, including those that did not need any infusion).

This seems like a small price to pay for extending financial viability from 15 to 50 years, especially since it avoids the need for costly recapitalizations (the public cost of which we estimate at $63,985 per unit based on data for properties in our sample). It also facilitates long-term affordability covenants of 30, 40 or even 50 years, which can reduce the costs of each year of affordability.

There are obviously many questions and issues that need to be fully considered before this approach is adopted. For this reason, we’ve prepared a paper examining the practical and policy implications of lifecycle underwriting. Take a look and let us know what you think, we’re eager for your feedback.

The full suite of materials, available at, includes four products:

  • L-Cycle – a free online tool for applying lifecycle underwriting to specific properties. The tool enables users to examine whether specific properties are likely to be viable over a 50-year lifecycle and if not, how much of an additional deposit would be needed to the initial replacement reserves to ensure viability.
  • The policy implications paper described above that considers the implications for policy and practice of lifecycle underwriting.
  • An overall summary of the research that produced lifecycle underwriting, including the application of this approach to compare two methods of producing multifamily affordable rental housing: new construction and acquisition-rehab. (Quick summary: among the 200+ low-income housing tax credit properties in our sample, new construction was 25 to 45 percent more expensive.)
  • A technical paper describing the lifecycle underwriting methodology in depth.

The study team consisted of researchers at the Center for Housing Policy, The Compass Group and Summit Consulting, with our colleagues at the National Housing Conference joining us for the policy analysis. We are deeply grateful to the John D. and Catherine T. MacArthur Foundation for funding this work, but any errors or opinions expressed in the materials are those of the authors alone.

We’ll look forward to your input on these materials, as well the ideas in this column. Please join the conversation and post a comment below.

Tuesday, February 19, 2013

How did inclusionary housing weather the crisis?

by Robert Hickey, Center for Housing Policy 

After the Downturn cover imageIn lieu of preparing our own version of the Harlem Shake video last week, the Center for Housing Policy polished off a new report about inclusionary housing that I think you’ll find at least as enlightening. After the Downturn: New Challenges and Opportunities for Inclusionary Housing examines how well inclusionary housing policies weathered the historic housing downturn, and how the environment for inclusionary housing has changed since 2007.

By way of background, inclusionary housing policies require or encourage developers to include a modest share of new homes for low- or moderate-income households in otherwise market-rate developments. Often these policies function as mandatory zoning requirements but are accompanied by various forms of regulatory relief to help offset the costs for developers of pricing units more affordably.

Up through the recent housing boom, inclusionary housing policies enjoyed growing popularity, both as a mechanism for including affordable homes in opportunity-rich, high-demand neighborhoods, and as a tool that engages the private sector in creating needed affordable homes. But over the past five years, new challenges have emerged that affect the workability and effectiveness of many inclusionary housing policies. These include:

  • New restrictions on applying inclusionary requirements to rental housing in several states; 
  • A shift in development patterns to­ward “infill” settings where developments costs are often higher; and 

After the Downturn discusses these and other key issues that have come into focus over the past five years, drawing on conversations I was able to have with practitioners, experts, and local administrative staff from across the country. The report also discusses some promising responses that may be relevant to local jurisdictions as the market begins to recover, while leaving a more extensive treatment of potential solutions to follow-up reports.

After the Downturn is the first in a series of research papers and policy briefs on inclusionary housing due out from the Center in 2013. We look forward to your feedback, and to sharing more research as the year unfolds.

Thursday, February 14, 2013

Senators Hagan, Isakson, and Landrieu call for QRM without downpayment restriction

by Ethan Handelman, National Housing Conference 

Three Senators—Kay Hagan (D-NC), Johnny Isakson (R-GA), and Mary Landrieu (D-LA)—wrote to the regulators responsible for the qualified mortgage rule (QRM) asking for swift action on a final rule to enable home mortgage lending. The QRM would define exemptions from risk retention requirements for securitized mortgages and would likely have far-reaching effects on the availability and affordability of home mortgages. The senators specifically opposed a downpayment requirement in QRM, noting that it was against the intent of Congress and would deny opportunity to responsible borrowers.

NHC continues to push for a QRM rule that ensures access to affordable home mortgages for low- and moderate-income families. An onerous downpayment requirement in QRM could not only keep low-wealth households from achieving homeownership but also create an unintended focal point for future changes to our housing finance system. High downpayments are neither necessary nor sufficient for a loan to be a good loan, and our regulations should not erect barriers to homeownership in the name of risk reduction.

Wednesday, February 13, 2013

National Housing Conference reacts to Obama’s focus on housing

Chris Estes, president and CEO of NHC, issued the following statement in response to Tuesday night’s State of the Union address by President Obama:

Chris Estes
In last night's State of the Union, President Obama recognized the essential connections between housing and our country's future. Without vibrant housing markets around the country, we cannot achieve the growth in incomes and employment we need to emerge fully from the Great Recession. We must ensure that all in America have access to safe, decent and affordable housing that enables households to build wealth, empowers children to succeed in school and allows families to live healthier.

The National Housing Conference applauds President Obama's call for refinancing home mortgages—it is an economically sound policy improvement that should appeal to policymakers of any party. The principle behind it, that low wealth should not preclude households from becoming responsible homeowners, should guide our approach to reforming our system of mortgage finance to provide long-term fixed-rate mortgages, financing for multifamily affordable housing and access to rental and owned homes for low- and moderate-income families.

Refinancing alone will not solve our housing challenges. President Obama recognized the need to invest in communities, particularly those that saw wealth erased by the housing bust and neighborhoods devastated by waves of foreclosures. We need to build on the solutions developed through the Neighborhood Stabilization Program to help revitalize struggling communities and prevent further damage from foreclosures. The President's proposal to target resources toward 20 of our "hardest hit towns" is certainly a start, but there are too many communities in need to limit our efforts to a pilot program. NHC looks forward to working with Congress and the President to find ways to help all struggling neighborhoods in America.

The President’s commitment to making homes more energy efficient is an important step forward. Reducing the energy consumed by housing makes good economic sense. It also contributes to affordability, because energy bills often take a substantial bite out of a weekly paycheck. NHC and its members, particularly through the Green Affordable Housing Coalition, are committed to policy changes that support more efficient, greener, healthier single-family and multifamily homes.

NHC welcomes the details that are sure to follow the State of the Union proposals. We will offer our members' expertise to aid the President and all members of Congress in creating the housing solutions we need to ensure that all in America have a stable, affordable place to call home.

The housing crisis requires multiple policy tools

by Ethan Handelman, NHC; Peter Lawrence, Enterprise Community Partners; and Michael J. Novogradac, Novogradac & Company LLP

We have a nationwide affordable housing crisis that is growing despite the housing crash. Over 10 million working families pay more than 50 percent of their income for housing—that’s nearly one in four working households.

In a recent MetroTrends blog post, Robert Lerman argues we should increase funding for programs that help people pay for their housing by reducing funding for programs that create new affordable homes. In fact, we need both approaches to resolve the crisis, and programs like the Low-Income Housing Tax Credit create new homes efficiently and effectively.

Real estate is local, so our affordable housing policy by necessity must be somewhat local too. In places where housing is available but people’s incomes are too low to afford it, demand-side help like housing vouchers can work well. In places where the market has difficulty creating new homes—for instance, because of high land costs, regulatory barriers, not-in-my-back-yard opposition, or physical constraints—supply-side programs that create new homes can work better.

Supply-side programs also create jobs, economic activity, and local tax revenue. Indeed, if we simply add vouchers without adding new homes, the vouchers become harder to use and the resulting higher rents make affordability worse. We have a mixture of demand-side and supply-side programs to respond to the variety of market conditions that exist nationwide.

A primary program to create and preserve affordable housing, the Low-Income Housing Tax Credit (or Housing Credit), creates homes affordable to people with often extremely low incomes and, in many cases, provides better quality homes closer to jobs, transit, and better-performing schools than their previous homes. Even if the new Housing Credit homes sometimes take the place of market rate housing (the few studies Lerman cites are far less conclusive than he implies), they still fulfill the essential public purpose of providing below-market rents to the most vulnerable, including the formerly homeless, older Americans, veterans, and people with disabilities.

The Housing Credit leverages investor capital and private sector asset management expertise to create homes efficiently. Housing Credit pricing has rebounded quickly from the brief low during the financial crisis to levels now of 90 cents on the dollar or more, up front, for tax credits paid out over 10 years, creating housing that must be affordable for at least 30 years and often much longer. And those same investors oversee the projects to ensure their success, which contributes to the cumulative foreclosure rate of 0.62 percent of Housing Credit properties, even during the Great Recession, far less than any other real estate class.

Simplified cost comparisons, such as the 2002 GAO study Lerman cites, present a flawed picture that underestimates the benefit of up-front investor capital (especially given today’s low interest rates), the operational and development risks borne entirely by the private sector, and the reduced budget uncertainty for the government.

The many foreclosed homes resulting from the housing crash are not a quick fix for people in need. Many foreclosed homes are in poor condition, and even more are too distant from jobs, transportation, and good schools. Emerging efforts to aggregate single-family homes into scattered site rentals are a laudable experiment to see whether the model can provide high-quality, affordable homes at scale, but it is an extremely challenging business that is far from proven out.

The Housing Choice Voucher program and similar demand-side housing assistance programs are essential, as are homeownership assistance programs that help families achieve stability and build assets. As the burst housing bubble reminded us, homeownership is neither a one-way bet nor a good fit for all households. Helping families with good credit but low wealth step into homeownership through shared equity and down-payment assistance programs offers a more promising path than trying to shoehorn rental assistance into a homeownership model, as Lerman proposes.

We need housing policy that creates opportunities for those most in need and fits the right tools to the challenges in particular places. That means a mix of producing new rental housing, preserving existing rental housing, assisting households with housing costs, and creating sustainable homeownership.

About the authors
  • Ethan Handelman is the vice president for policy and advocacy at the National Housing Conference.
  • Peter Lawrence is senior director, public policy & government affairs, at Enterprise Community Partners.
  • Michael J. Novogradac, CPA, is managing partner in the San Francisco, California office of Novogradac & Company LLP.

Monday, February 11, 2013

FHA in the spotlight, structural reform in the shadows

by Ethan Handelman, National Housing Conference

Congress is rediscovering the FHA. Last week’s hearing in the House Financial Services Committee highlighted clashing views from Ed Pinto of the American Enterprise Institute and Julia Gordon of the Center for American Progress, among other experts. Wednesday will see testimony from FHA Commissioner Carol Galante centered on the actuarial report (see our past comment). Look for more hearings to come on the Senate side, too.

Media attention has picked up, too. Nick Timiraos’ column in Sunday’s Wall Street Journal matches a negative headline, “Tangled in Housing Bust, FHA Seeks a Hand” with a thoughtful discussion of how FHA’s financials reflect its role as a countercyclical lender providing essential credit when most others fled during the financial crisis. We certainly need a thoughtful debate about how to responsibly deploy the government’s backing in the housing market, but as Timiraos notes, “that discussion will be harder to have if the housing market is stuck in first gear because only certain households can get a loan”.

Hardly anyone has picked up the true policy challenge—structural reform of FHA. The ideological clashes often miss the real limitations of a loan insurer that cannot change product terms, create new products, or adjust its staffing without an act of Congress. If both ends of the political spectrum can become comfortable with a more independent, more flexible FHA that remains true to its core mission of lending to low-income and first-time homebuyers through up- and down-market cycles, we might just get the reforms we need.

Friday, February 8, 2013

"Housing's Lost Decade" and where the market is headed

by Cynthia Adcock, National Housing Conference and Center for Housing Policy

A trio of seasoned housing sector veterans are adding their voices to a rising chorus of assertions that the housing industry is finally on the upswing. A new report, Housing’s Lost Decade: Where We Go From Here, focuses primarily on where the market might be headed in the years ahead. The report’s authors, NHC Board member Kent Colton, Gopal Ahwulahlia and Jay Shackford have between them more than a century of combined experience as housing market observers.

Colton, who also serves as chairman of the board of the Center for Housing Policy and a member of the NHC Board of Directors, was CEO of the National Association of Home Builders (NAHB) for 15 years and director of President Reagan’s Housing Commission; Jay Shackford headed up NAHB's media and public affairs operation for 35 years; and Gopal Ahluwalia, was NAHB's chief economic and market researcher for three decades until he stepped down in late 2009.

Playing to Ahluwahlia’s strength as a master data manager, the report’s 40-slide PowerPoint presentation is chock full of backup charts and data. It covers a wide range of issues, including the excesses leading up to the subprime mortgage fiasco and the 2008 financial market collapse, what needs to be done to fix today's struggling housing finance system and the mountain of student debt (now over $1 trillion) and challenging job market weighing down 65 million echo baby boomers, many of whom are doubling up with friends or family and standing on the sidelines waiting to get into the housing market. Says Colton, “It's a comprehensive and candid look the housing market and an appropriate reminder of what went so fundamentally wrong during the housing boom years, a story that needs to be told and retold to avoid repeating those same mistakes again. “

Ahluwahlia, an oft-quoted housing statistician during his time at NAHB, likens “echo baby boomers” consumers born between 1981 and 1995 to children at the beach—gingerly dipping their toes into still frigid waters at the beach. “You know they are going in, it’s just a question of time,” said Ahluwahlia.

While all three authors agree that the bottom is in the rear-view mirror Shackford cautions that the path forward will be slow. “Major obstacles need to be hurdled before a solid and sustainable recovery can get fully underway, “he notes.

For more information on the report, contact co-author Jay Shackford at

Wednesday, February 6, 2013

NHC at Habitat on the Hill conference

by Ethan Handelman

I spent Monday with Habitat for Humanity affiliates from around the country who gathered in Washington, D.C., for their Habitat on the Hill conference. In one panel session, we discussed the HOME program, which has been an ongoing part of NHC’s housing advocacy as well as an important tool for some Habitat affiliates in their builds. In a second session, I moderated a discussion of mortgage finance reform issues that helped to draw connections between the secondary mortgage market and the stability of households and neighborhoods who rely on safe, reliable mortgage credit.

Throughout the day, I’ve been struck by the dedication and knowledge of the attendees. The more housing stakeholders we can bring to Washington to make a compelling case for housing assistance in all forms, the better.

Monday, February 4, 2013

Treasury speech offers hope for mortgage finance reform, highlights challenge

Michael Stegman
by Ethan Handelman, National Housing Conference

Earlier this week, Michael Stegman, counselor to the Treasury Secretary for housing finance policy, spoke about the unresolved challenge of reforming our mortgage finance system, particularly Fannie Mae and Freddie Mac. In his remarks, he offered hope for those committed to a future mortgage finance system that broadens affordable rental and homeownership opportunity while protecting American taxpayers. He also identified the lack of cohesion among competing interests as a barrier to moving forward.

Stegman laid out five principles to guide a new mortgage finance system that go a little bit beyond the three options paper Treasury offered up two years ago and signaling a stronger commitment to an ongoing federal role. They’re concise and worth quoting (as reported by Nick Timiraos of the Wall Street Journal):

  • Private capital should “bear the primary burden for credit losses” and taxpayers should be “strongly protected.” 
  • Households should have access to “sustainable mortgage credit, which must include long-term fixed rate mortgages.” 
  • The government should promote counter-cyclical lending—that is, markets that provide credit even during periods of severe stress. 
  • Borrowers in all communities, and across the income spectrum, must be served. 
  • Any housing-finance overhaul must also address the needs of renters.

These align well with the principles NHC put forward (see the broad principles and the multifamily principles) even longer ago than the Treasury paper. So there’s hope that we will eventually see movement toward a new and better housing finance system. But Stegman also highlighted the challenge that competing interests in the mortgage space have not come anywhere near a consensus.

Interest groups demanding that government officials make tough choices is hardly new. Indeed, it’s part of the reason we have government officials in the first place. But we as stakeholders should take Stegman’s observation to heart. It’s in our enlightened self-interest to create mortgage finance system that protects taxpayers from assuming unnecessary risk, strengthens households and neighborhoods in ways that help the overall economy, and creates opportunity for private enterprise to do well by doing good. By being open to compromise and willing to engage constructively with the complex tradeoffs inherent in such a major policy overhaul, we can move closer to our collective goal of safe, decent, and affordable housing for all in America.